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Last March, the Quebec Securities Commission (AMF) held a public consultation to discuss Equity Crowdfunding and its applicability. Our team has been working tirelessly since July for this moment. With “success stories” multiplying across the globe, we, too, want our SMEs and start-ups to benefit from this model. Enabling them to raise funds online and individuals to become investors without having 1M$ in assets. Angels and VCs around the table agreed that this model complements the existing ones, and that it is a necessary component to our ecosystem…”we fund 30 out of 1300 startups. What happens to the remaining 1270?” one angel asked.

You will find a recap of the session on our partner site, National Crowdfunding Association. The following outlines some of the principles raised in session and that you will find in our upcoming positioning paper:

Notion of risk. A business is pitched on a crowdfunding portal. There is always a potential risk notably if the business is early stage (prototype, beta) that the investor may not see a return. The investor must be at ease with this and rely on his own knowledge or seek council. On the other end of the spectrum, a business that has sales to show for, will be expected to justify its valuation and have the figures to back it up. Transparency is key.

Trust the crowd (unaccredited investors). We do not expect a perfect fit in year 1 of adoption. There will be growing pains as there were for e-commerce in the late 90’s. The important is to leverage these and build best practices. You may find investors that are not satisfied with their choices and may blame others. We believe that this learning phase will be a confidence builder and they will find, with time, better sources of advice on and off line.

Higher Cap . To ensure a higher penetration rate and fulfill the needs of both start-ups and SMEs, we recommend raising the investment round to 1M$ on a 12-month period.

Relying on social networks. This is where the paradigm shift must occur. I understand that it may hard to believe that online conversations can help detect fraudulent practices but it is a fact. As Kickstarter’s founder said, “People have called them out and they don’t get funding. The internet asks questions.”

The shareholders agreement generated much discussion among the securities lawyers present at the session. Experience shows that agreements are source of fraud either through restrictive clauses or fine print. Hence they believe that Invest crowdfunding may be the host of such practices. We recommend having standard shareholder agreements (same format for all) to reduce collateral dammage. This point remains to be discussed and should not be a barrier to adoption.

The status of Equity Crowdfunding portals is an important issue.We believe that portals, as in England, France, Finland, Belgium and Australia, should stand as a matchmaking site – nothing more, leaving advisory to others. It is the investor’s responsibility to seek council (cf. point #2) and the issuer’s to pitch/explain in layman’s terms. To restrict portals to traders only or to restrict portal usage to accredited investors is taking the crowd out of crowdfunding. It’s VC online, as provided by FundersClub. Portals in Quebec, Ontario and Alberta are in the works . They are waiting for the green light.

At Invest Crowdfund Québec, we will continue our work with regulatory bodies and remain optimistic about the prospect of equity crowdfunding in Canada.

The AMF To Facilitate Access to Capital by SMEs…One Step Closer to Equity Crowdfunding

To facilitate access to Capital by SMEs, the securities commission from 9 provinces have each published a harmonized interim local order that provides exemptions from financial statement-related requirements. In short, individual investors – non-accredited and with no relationship to the equity-funded business – will be able to invest and those businesses issuing equity will not be required to file a prospectus (onerous expenditure) for investments under $500K. http://lnkd.in/RYtGHk

In addition, the Commission is prepared to consider applications for registration by funding portals on a case-by-case basis.

Indiegogo Expands Internationally With New Capabilities in Canada
Checking in with Indiegogo co-founder Danae Ringlemann.

Indiegogo, the world’s largest global crowdfunding platform, announces new offerings in key global markets today– including local currencies, languages and localized search and discovery experiences. These new capabilities launch immediately in Canada, France, UK, and Germany as part of Indiegogo’s continued focus on improving the customer experience and providing relevant local market content for campaign owners and funders.

The initial release of Indiegogo’s international features includes:

Currency: transactions are now available in Canadian Dollars. Pricing, fees and payment modes remain the same.

Language: since our population is so diverse, the Indiegogo platform will be also available in French late December. The user will be able to easily toggle to the other language and launch campaigns in both French and English (German will also be added to the German platform).

Localization: Indiegogo will be offering localized versions of the homepage and search and discovery experiences for Canadians in early 2013, to highlight local campaigns. The platform will provide a “cultural” feel and an extra layer of filtering thus creating more proximity with the crowd.

I spoke to Danae Ringlemann, co-founder of Indiegogo about what this launch meant for Canadians. “Canada is our second largest market after the US, with campaigns from filmmakers small business, entertainment etc. right from the start. We want to offer them a seamless and easier customer experience,“ said Danae . “Most people are more comfortable transacting in their own preferred currency.”

And there’s more…Danae makes it a point to adapt Indiegogo to changing needs. She is in the front seat and sees society change at a rapid pace. “Crowdfunding is becoming more vertical. Take health for instance. It has changed like never before. Indiegogo campaigns on disease research or a much-needed surgery are on the rise. Even in vitro fertilization is being crowdfunded.” Sports has also evolved. “Now, we find people funding a field trip, club membership, or high-level training.”

Does Indiegogo have plans to offer equity crowdfunding? “We are very supportive of it [Invest Crowdfunding]. We have not decided yet but we’re giving it some thought. Having built a strong customer base and proving social fundraising works, the U.S. government came to us and partnered with us for Startup America. I was invited last week by the European Commission at Brussels to showcase what we’ve done and how our platform prevents fraud. We are in support of putting regulations in place without making it too cumbersome but first we need to know how it all plays out”, concluded Danae.

It will be interesting to see in the coming months how Indiegogo will cater to Quebec and other provinces, how the platform will be adapted in terms of design or tagline. Local Team. As they will be launching a subsidiary in the UK first half of 2013, could we expect a local presence in Canada with a dedicated team for support and communications? Competition. Also, how local crowdfunding providers measure up to Indiegogo is something we’ll be looking at closely. Equity Crowdfunding. Lastly, 2013 may be the year for “equity crowdfunding” in Canada. It will be interesting to see if Indiegogo will integrate this service sooner than anticipated.

In short, it was great to get an update from Indiegogo about their international expansion as they announce this news today in Paris at LeWeb. It was also great to get Danae’s final words on what it takes to succeed at crowdfunding: “Our advice is that you don’t have to be someone else, just be authentic with your campaign. Indiegogo gives you the traction you need and the buzz that VCs are looking for. Just be yourself. People fund people.”

Ontario may well be the next adopter of Invest Crowdfunding ahead of the U.S.

Thursday morning, the Hon. Brad Duguid, Minister of Economic Development and Innovation was the honorary guest at Technicity, the first Equity Crowdfund Conference in Ontario. Min. Duguid spoke about the potential benefits that equity-based crowdfunding provides for entrepreneurs and said once the Ontario Securities Commission completes a review, the provincial government would look at ways to move forward with changes.

Great panel, crowd and organization and more importantly the outcome that I will highlight further. It was also a rare opportunity to meet up with the other shakers of Invest CrowdFund Canada : Dr. Cindy Gordon, national Chair of ICC and CEO of Helix Commerce Intl, Fawn Annan VP for Ontario and CEO of IT World Canada, Andrew Weir VP national communications, Debra Chander VP National marketing, and Barry Gander, i-Canada co-Founder. I also had a serendipitous moment, meeting Craig Asano, Executive Director of the National Crowdfunding Association of Canada, with whom I’ve been exchanging emails with for the past weeks and had yet to meet.

A Room Full of Believers in Equity Crowdfunding

The entire Canadian ecosystem was present and the excitement palpable. When Darren Westlake, co-founder of CrowdCube, UK’s Equity crowdfunding platform, took the stand, we had high expectations and were not disappointed. Darren walked us through the process of an equity crowdfunded business, provided key success metrics and gave us a view of what lies ahead for equity CF sites. I tweeted as I listened (see end of post). All provinces needed to catch a glimpse of the lessons learned and the opportunities, and more importantly realize that we all share the same concerns: the need for democratizing investment to close the financial gap and stir innovation.

The keynote was followed by a panel discussion including top influencers from the technology, regulatory, banking and VC sectors: CEO of ING Canada, Peter Aceto ; founder of Stratus Capital and a board director at the Toronto Angel Group, Dr. Richard Reiner; creator of Social Venture Exchange, Adam Spence and Dr. Cindy Gordon, who moderated the event. There was great talk on Ontarian initiatives to boost innovation and Canadian-specific requirements, i.e. tax incentives for equity crowdfunded businesses.

The third highlight of this matinee was the group table dialogue moderated by Chairman of the Exempt Market Dealers Association, Brian Koscak. In short, each table was asked to discuss three questions that were later shared in plenary. Our set of questions: Should issuers be subject to an annual limit on how much they can raise? Should issuers be subject to a minimum and maximum offering threshold? Should securities be limited to equity only or debt and equity?

This session gave way to much discussion and differing opinions. It’s all good. This is how change starts to take place. The value lies not in the “right” answers but in addressing the right questions, having such a large number of interested and engaged professionals.

What is the main motivator for Equity crowdfund investors?

One crucial teaching that I take with me is that equity crowdfund does not belong to one select group but to all. And to confine it to the financial or regulatory sphere is a mistake. Yes, equity CF addresses financial and regulatory concerns, i.e. how much does one invest? How much can one raise?, and for good reason. Yet it also addresses regional/municipal economic growth and innovation rate, i.e. investing in a company for reasons other than financial. Darren nailed it when he said

Financial return is not the main motivator, supporting SMEs is.

Because you may not see a return in VC terms (<5 years) but you will be contributing locally to the long term growth of businesses and job creation. And as Darren mentioned, these SMEs eventually scale and their value increases thus interesting other categories of investors. It’s a win-win.

Why accelerate the adoption of Equity Crowdfunding in Quebec?

First and foremost, start-ups are leaving Quebec for better (financial) conditions. Love money and bootstrapping are NOT accessible to every entrepreneur. Some keep their day jobs and work nights to make their great idea actionable but with a lot of collateral damage. Those that do succeed with some help of their close circles need more funding to scale and acquire new clients. Yet VCs and Angels can only fund so many start-ups in early or later stage. This leaves quite a large crowd of entrepreneurs who more often than not, call it quits (50% of SMEs have a lifespan of 5 years).

Then I ask you. How can Invest/Equity Crowdfunding not be part of the public agenda? As Ontario, this should become a concern for all: the Prime Minister, the Ministry of development and innovation, the Ministry of small business, corporations, SMEs, start-ups, VCs, angels, business associations, exempt market dealers, regulatory agencies, strategists, social media experts, IT experts, securities lawyers, academia, individual investors, Julie, John, Mr and Mrs Smith, and the generations to come.

Why wait-n-see, especially when the market is clearly sending out signals that Equity CF works? Naysayers may respond “sure, it works in Australia or UK, but it isn’t going to work here.”, “It’s going to kill our VCs” or “No one knows what Invest CF is, let’s wait it out”. I am a partisan of dialogue among stakeholders and I believe that in lieu of making assumptions amongst ourselves, we should create an open public arena. Our blog is one those places and we welcome your questions, concerns, suggestions. Last Monday’s short talk at Crowdfund Night was yet another opportunity and people came up to me with more questions. Yes, the interest is there and we must cultivate it.

Seemingly, Ontario is next up to adopt Invest Crowdfunding, and other provinces will follow suit. We do not want to see our country divided, hence running the risk of losing our Quebec entrepreneurs to other regions, where more diversified financing mechanisms will be in place sooner than later.

If you would like to accelerate the adoption of crowdfund Investing, we welcome the addition of your strengths to our cause.Contact us. Many thanks.

I attended Crowdfund Night yesterday at the Notman House and saw familiar faces. The Plebs and Make a Champ crowdfunding platform founders, to name a few. There is clearly a growing trend in Quebec to bypass the current financing structures. For many reasons. One, not everyone gains access to financial programs and two, it can take months until you do receive funding if you are selected. Hence, viable and right-on-target projects often see their days counted and end up in the sewer. Plebes and Make a Champ address those needs. They select their projects carefully, assessing their worth (past, present, future) prior to engaging with them.

This said, the “other” model – Equity crowdfunding or Invest crowdfunding – is more complex as it involves securities regulation. Buying private equity online through a web platform is a formidable way of helping businesses scale yet there are potential pitfalls along the way. Last night, I gave a talk on Invest Crowdfunding, the “Localvesting” model: how it could create sustainability, how mom and pop investors should have the opportunity to invest in a business they believe in, how fraud is kept to a minimum in invest crowdfunded nations, and social medias’role. In short, how this model fits well within the Quebec ecosystem. We also discussed what it takes to make it legal in Quebec and the rest of Canada.

Since our last presentation, I got the distinct impression that awareness around this model is growing. Questions from the crowd were more acute. “Which sectors will benefit from this model?”, “Are there support structures in place to help businesses crowdfund?”, “How does share valuation work?”. It’s safe to say that grassroot initiatives like ours are beginning to unfold. Public speaking is one facet of our movement. Content generating/curation, all-around networking, engaging within our communities, think tanks and our own professional endeavours are also part of the equation.

At Invest Crowdfund Quebec, our objective remains to inform, educate, and create awareness. At our next team meeting, we’ll be mapping out 2013 action plan. We invite our readers to show their support by attending events, asking more questions on this blog, recommending articles and generating content. These questions and thoughts will contribute to the framework we are building in collaboration with the other provinces. Such a framework is a gateway to convincing our authorities to put Invest Crowdfunding on the public agenda.

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